United buying London routes from Pan Am

October 24, 1990|By New York Times News Service

NEW YORK -- UAL Corp., parent of United Airlines, announced yesterday that it had agreed to acquire one of the most prized assets in the airline industry, the routes of Pan Am between five U.S. cities and London.

The $400 million acquisition pact was a coup for Stephen M. Wolf, chairman of UAL. The all-cash transaction could give United a substantial lead over its competitors, American Airlines and Delta Air Lines, in the race to Europe. At the same time it strips Pan Am of the core of its European route system.

The deal is evidence of a new round of consolidation in the airline industry at a time of high fuel prices and weak traffic. The survival of weaker airlines such as Pan Am is increasingly threatened.

Thomas G. Plaskett, the chairman and chief executive of Pan Am Corp., said at the news conference that the sale would provide badly needed cash and was part of Pan Am's strategy to trim itself to serving areas where it can make money.

If the pact is approved, Pan Am would still have many destinations in Europe, Eastern Europe, the Middle East, Africa and Latin America.

Pan Am plans to move its European hub to Frankfurt, West Germany, and to begin flights from Los Angeles and San Francisco to Frankfurt next year.

The sale -- which would follow by four years United's acquisition of Pan Am's Pacific routes, another jewel in the old Pan Am empire -- faces big hurdles. It is subject to approval by the Transportation Department and the British government, which will have to consider the competitive effects of the sale on British Airways, with which United now has a marketing agreement, and with other carriers.

If the sale, which would give United landing rights at London's Heathrow Airport, is approved, it would turn British Airways and United into fierce competitors on some major London-to-U.S. routes.

Mr. Wolf acknowledged that the two big carriers would compete on these routes, but he said that the cooperation on other routes was expected to continue.

A spokesman for British Airways said the airline expected to retain its marketing agreement with United.

In addition to acquiring Pan Am's rights to fly between Heathrow Airport and New York, Washington, San Francisco, Los Angeles and Seattle, UAL would acquire Pan Am's route from Washington Dulles to Paris and most of Pan Am's unused international routes originating in Washington, San Francisco, Los Angeles and Seattle.

United would get all of Pan Am's space at San Francisco International Airport, Washington Dulles International Airport and Heathrow Airport, as well as two Boeing 747-200 jets.

Part of the sale included an agreement between Pan Am and United to cooperate in certain areas, including coordinating schedules, sharing airport space and joint marketing.

In the large carriers' race to become global there are key cities -- Tokyo, London and New York -- where a large presence is desirable.

Analysts noted that parts of the acquisition would fit well with United's existing hubs at Dulles and San Francisco.

The deal was announced after the stock markets had finished trading. United's share price slipped 37 cents on the New York Stock Exchange to $95.375, while Pan Am's was unchanged at $1.625.

The pact is a blow to Robert L. Crandall, chairman of the AMR Corp., parent of American Airlines. He has been making a big drive to expand to Europe, has been frustrated by an inability to get routes between London and large U.S. cities. Yesterday, before the UAL-Pan Am deal was announced, he had said that he planned to go to London to ask British officials to provide more routes for American.